In another part of the same city, Anil Nangwani, an executive in a public relations firm, handholds his aged mother to the dining table with tender concern. At 29, he is barely four years older than Jha, but his life circumstances are vastly different. His father passed away in 1999, and his mother retired as a government school teacher the next year. This meant that at about the same age as Jha is today, Nangwani was his family’s sole breadwinner. Now married, he has two financial dependants. Acutely conscious of the burden of this familial responsibility, he is now looking to add to his life insurance cover (for which his mother is a nominee) with a term plan.

Circumstances, not age
The critical lessons that can be drawn from the life experiences of Jha and Nangwani are that your life insurance needs are determined not so much by your age as by your unique life circumstances, and that it is vitally important to review and revise your insurance cover with changes in these circumstances. Failure to do so can leave gaping holes in your cover.

Says Shivaji Dam, managing director, OM Kotak Mahindra Life Insurance: "Any event that may have the effect of changing considerably the financial course of your life warrants a review of your insurance cover. These could be anything from landing a job to getting married to having a child to taking a home loan to the retirement of one’s parents."

Debashis Sarkar, senior vice-president, marketing, Max New York Life Insurance, asserts: "Assessing your life insurance needs is not a one-time exercise. It is a dynamic process that must be gone through as often as possible." In fact, he argues, it is good practice for your life insurance advisor to visit you every year–"not just to collect the premium for your policy, but to understand how your life circumstances have changed over that year."

Few people carry out periodic reviews of their insurance cover–and top it up to reflect more current needs–with the diligence and regularity that Chennai-based businessman D. Sathyamurthy, 34, does (See Sideshow: ‘Mr Do-It-Right Shows the Way’). Even so, it is critical to review one’s needs at at least a few of these life’s milestones.

That first job
Buying life insurance makes financial sense only when there is an income stream to protect. The first job, then, is the first milestone at which you must take a hard look at your insurance needs. "One normally looks at insurance for the first time after landing that first job," says Saugata Gupta, head, marketing, ICICI Prudential Life Insurance. Even at that stage, you will need life insurance only if–like Nangwani and unlike Jha–you have financial dependants.

But even for people like Jha, with no financial dependants, there is one cover that risk management experts recommend highly: a personal accident policy. Given the fact that a person below 30 is far less likely to die of natural causes than in an accident, a personal accident policy, with disability cover, is more appropriate than a life cover, says risk management consultant Swami Saran Sharma. This cover, he adds, comes at a far lower premium than a life insurance cover, and should be continued for as long as it is available, even concurrently with life policies that may be bought later.

Jha, a confirmed party-goer, is convinced that she needs a personal accident cover, particularly given Delhi’s manic road conditions.

Pankaj Seith, head, marketing, HDFC Standard Life Insurance, says that his company offers riders (optional add-on clauses) that cover the risk of accidental death and disability. Other insurers too offer a range of riders that let you customise your life cover at little additional cost (See ‘Matter of Choice’).

A growing family
The second life circumstance that typically warrants a review of your insurance needs is an expansion of your family size–following marriage and the birth of a child. When he got married in 2001, Naveen Adhlakha, a senior lecturer with the Institute of Technology and Management in Gurgaon, followed the rule book and enhanced his life cover. Likewise when his daughter was born in 2003. "There is nothing that compares with the birth of a child in reinforcing a sense of financial responsibility," says Adhlakha. "When my daugher was born, I felt that my whole world had changed."

Adds Sarkar: "It’s fairly well established that a lot of people buy their first life insurance policy following the birth of a child. Parenthood evidently sharpens people’s focus in respect of their personal finances."

Dam recommends that the first insurance policy that you buy be a term plan for a large sum assured. "That way," he says, "your insurance needs are well met fairly early, and you no longer need to assess subsequent plans through the prism of death benefit alone."

Rising incomes
One of the reasons for buying life insurance is to absorb the financial shock that your sudden death may cause your dependants, and to ensure that they can afford, even in your absence, a lifestyle that they are accustomed to. Every rise in income that goes to support a certain lifestyle for you and your family, therefore, warrants a review of your cover. Failure to do this would expose your dependants to the risk of your being underinsured. This was one of the considerations that led Saurabh Garg, a 28-year-old Delhi businessman, to go in for a Rs 10 lakh term cover from LIC earlier this year. Garg’s business has just moved into a higher earnings orbit; he also plans to be married soon.

Rising liabilities
Just as important as matching your insurance cover with rising incomes is to ensure that it keeps pace with your liabilities. In these days of low interest rates, it is common for families to leverage their future incomes and avail of long-term loans to create assets, such as a home or a car. But when you do that, there is one risk to which your dependants are vulnerable: the risk that you may not be around to repay the loan.

In recent times, insurers have come out with products that cover just such a risk. Asset insurance, or mortgage protection cover, insulates your dependants from the financial burden of a loan in the event of your death before its repayment. As you keep repaying the loan and the outstanding amount declines over time, so does the asset insurance and the premium you pay for it; this way, you have just enough cover to meet the liability.

Says Delhi-based hotel executive Dinesh Mohan: "When I signed on for a home loan in 2002, I was keen to protect my family from bearing that burden, in case I wasn’t around. My house is hypothecated to the lender, and in any case the law is weighted in favour of the lender." The mortgage protection cover he’s taken on, he believes, will protect them against such a contingency.

Soft landing
Typically, your insurance needs rise during your earning years, keep pace with rising incomes, peak by your mid-50s, and subsequently taper off, since by then your children would in most cases have become financially independent. It is important, therefore, to review your insurance needs at about that point–and jettison covers that you no longer need. Else, you are at risk of being overinsured –and are likely paying good money as premium for cover that you don’t really need.

Says Anjana Grewal, vice-president, marketing and communication, Birla Sun Life Insurance: "There are other circumstances in which such a review of life insurance covers is warranted–for instance, a change in earning capacity, changed profile of dependants, change in the cost of living, and consequent changes in the amount of disposable income on hand."

B.L. Malhotra, a retired government servant and a labour law expert, dexterously planned his asset-liability balance and a mortgage cover in such a manner that the loan was paid off during his earning years and he could scale down his life cover in his retirement years, when he did not have an income to protect. During his earning years, he also timed his life cover purchases in a way that he could let go of a couple of term plans once his children became financially independent. "I did not want to commit myself to premium payments after my retirement," he explains.

The exceptions
Conventional wisdom–and the thumb rule for buying insurance–has it that your insurance needs are minimal in your early earning years and, again, that they taper off after retirement. But there may on occasion be exceptions to this rule–depending on your precise life circumstances.

For instance, Nangwani, as his family’s sole breadwinner, had to buy life insurance to protect his income even in his mid-20s. Likewise, there may be situations when you need insurance cover even in your retirement–for instance, if you had an income to protect even at that age or you had financial dependants. A precise assessment of your insurance needs, therefore, hinges on the particular circumstances of your life.

New-age insurance
Dam says he senses among insurance buyers a greater appreciation of the merits of long-tenure term plans as the best risk management tool. "People realise the need to look at insurance for 15-20 years in order to cover risk at optimal costs," he says. Increasingly, however, insurers are coming out with market-linked plans that offer policy buyers far greater flexibility and choice (see ‘Matter of Choice’, page 48). Says Sanjeev Mehta, 39, a Mumbai businessman: "These products let you enhance your cover, vary the investment patterns, and also let you make withdrawals." In other words, market-linked plans can be made to serve as a combination of pure-risk, endowment, moneyback and wholelife plans.

Stuart Purdy, managing director, Aviva Life Insurance, commends market-linked plans since they provide the most flexibility in refining your insurance–and investment– needs to reflect changes in your